No. 15-1189
`
`In the
`Supreme Court of the United States
`
`IMPRESSION PRODUCTS, INC.,
`
`Petitioner,
`
`v.
`
`LEXMARK INTERNATIONAL, INC.,
`
`Respondent.
`
`On Writ Of CertiOrari tO the United StateS
`COUrt Of appealS fOr the federal CirCUit
`
`BRIEF OF AMICUS CURIAE INTELLECTUAL
`PROPERTY OWNERS ASSOCIATION IN
`SUPPORT OF RESPONDENT
`
`keVIn h. RhoDes
`President
`steVen W. MIlleR
`Chair Amicus Brief Committee
`Intellectual PRoPeRty
`oWneRs assocIatIon
`1501 M Street, NW, Suite 1150
`Washington, DC 20005
`(202) 507-4500
`
`RobeRt M. Isackson
`Counsel of Record
`WIllIaM D. coston
`Joshua c. cuMby
`Venable llP
`575 Seventh Street, NW
`Washington, DC 20004
`(202) 344-4000
`rmisackson@venable.com
`
`Counsel for Amicus Curiae
`February 22, 2017
`271413
`
`A
`
`(800) 274-3321 • (800) 359-6859
`
`
`
`In the
`Supreme Court of the United States
`
`IMPRESSION PRODUCTS, INC.,
`
`Petitioner,
`
`v.
`
`LEXMARK INTERNATIONAL, INC.,
`
`Respondent.
`
`On Writ Of CertiOrari tO the United StateS
`COUrt Of appealS fOr the federal CirCUit
`
`BRIEF OF AMICUS CURIAE INTELLECTUAL
`PROPERTY OWNERS ASSOCIATION IN
`SUPPORT OF RESPONDENT
`
`keVIn h. RhoDes
`President
`steVen W. MIlleR
`Chair Amicus Brief Committee
`Intellectual PRoPeRty
`oWneRs assocIatIon
`1501 M Street, NW, Suite 1150
`Washington, DC 20005
`(202) 507-4500
`
`RobeRt M. Isackson
`Counsel of Record
`WIllIaM D. coston
`Joshua c. cuMby
`Venable llP
`575 Seventh Street, NW
`Washington, DC 20004
`(202) 344-4000
`rmisackson@venable.com
`
`Counsel for Amicus Curiae
`February 22, 2017
`271413
`
`A
`
`(800) 274-3321 • (800) 359-6859
`
`
`
`
`
`i
`
`TABLE OF CONTENTS. . . . . . . . . . . . . . . . . . . . . . . . . . i
`
`TABLE OF CITED AUTHORITIES . . . . . . . . . . . . . . iv
`
`INTEREST OF AMICUS CURIAE . . . . . . . . . . . . . . . .1
`
`STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
`
`SUMMARY OF ARGUMENT . . . . . . . . . . . . . . . . . . . . .4
`
`ARGUMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
`
`I. This Court’s Quanta decision does not
`render all forms of conditional sales or
`licenses of patented products unlawful,
`nor should it . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
`
`
`
`A. The policies underlying reasonable
`limitations on use and resale in sales
`contracts and licensing agreements
`are sound and well-settled, and
`long- standing practices in the
`pharmaceutical, agricultural, and
`technology industries relying on such
`limitations weigh heavily against a
`break from this Court’s precedents
`recognizing their validity . . . . . . . . . . . . . . . .8
`
`
`
`B. Talking Pictures established the
`enforceability of sales and license
`provisions that restrict the use
`of patented items. . . . . . . . . . . . . . . . . . . . . .13
`
`
`
`TABLE OF CONTENTS
`
`Page
`
`
`
`ii
`
`C. The Mallinckrodt decision and
`t h e d e c i s i o n b e l o w r e f l e c t a
`st ra ight for wa rd appl icat ion of
`Talking Pictures . . . . . . . . . . . . . . . . . . . . . .15
`
`
`
`D. Talking Pictures was distinguished
`and reaffirmed in this Court’s Quanta
`decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
`
`
`
`II. This Court’s decision in Kirtsaeng does
`not apply to patents and did not overrule
`Jazz Photo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
`
`
`
`A. The policies that underlie patent
`exhaustion differ fundamentally
`from those defining the first-sale
`doctrine in copyright law . . . . . . . . . . . . . . .22
`
`
`
`B. This Court’s decision in Kirtsaeng
`relied primarily on a proper statutory
`construction of section 109 of the
`Copyright Act . . . . . . . . . . . . . . . . . . . . . . . .26
`
`
`
`C. The Kirtsaeng decision does not mention
`patents or rely on any cases dealing
`with patent exhaustion . . . . . . . . . . . . . . . . .27
`
`
`
`D. Both this Court’s and the Federal Circuit’s
`international-exhaustion jurisprudence
`are well-established and fully applicable
`to the facts at issue . . . . . . . . . . . . . . . . . . . .29
`
`
`
`Table of Contents
`
`Page
`
`
`
`iii
`
`CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
`
`APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1a
`
`Table of Contents
`
`Page
`
`
`
`iv
`
`CASES
`
`Adams v. Burke,
`
`84 U.S. (17 Wall.) 453 (1873) . . . . . . . . . . . . . . . . . . . 8-9
`
`Bauer & Cie v. O’Donnell,
`
`229 U.S. 1 (1913) . . . . . . . . . . . . . . . . . . . . . . . . . . . .9, 15
`
`Bobbs-Merrill Co. v. Straus,
`
`210 U.S. 339 (1908) . . . . . . . . . . . . . . . . . . . . . . . . 28, 29
`
`Boesch v. Graff,
`
`133 U.S. 697 (1890). . . . . . . . . . . . . . . . . . . . . . . . . . . .30
`
`Fuji Photo Film Co., Ltd. v. Jazz Photo Corp.,
`
`394 F.3d 1368 (Fed. Cir. 2005) . . . . . . . . . . . . . . . . . .30
`
`Fujifilm Corp. v. Benun,
`
`605 F.3d 1366 (Fed. Cir. 2010) . . . . . . . . . . . . . . . . . .30
`
`General Talking Pictures Corp. v. W. Elec. Co.,
`304 U.S. 175, affirmed on reh’g,
`
`305 U.S. 124 (1938). . . . . . . . . . . . . . . . . . . . . . . passim
`
`
`Hilton v. S. Carolina Pub. Railways Comm’n,
`
`502 U.S. 197 (1991) . . . . . . . . . . . . . . . . . . . . . . . . . 11-12
`
`Jazz Photo Corp. v. Int’l Trade Comm’n,
`264 F.3d 1094 (Fed. Cir. 2001) . . . . . . . . . . . . . passim
`
`
`TABLE OF CITED AUTHORITIES
`
`Page
`
`
`
`v
`
`Keeler v. Standard Folding Bed Co.,
`
`157 U.S. 659 (1895). . . . . . . . . . . . . . . . . . . . . . . . . . . .15
`
`Kimble v. Marvel Entm’t, LLC,
`
`135 S. Ct. 2401 (2015). . . . . . . . . . . . . . . . . . . . . . . . . .12
`
`Kirtsaeng v. John Wiley & Sons, Inc.,
`133 S. Ct. 1351 (2013) . . . . . . . . . . . . . . . . . . . . . passim
`
`
`Lexmark Int’l, Inc. v. Impression Prod., Inc.,
`
`785 F.3d 565 (Fed. Cir. 2015) . . . . . . . . . . . . . . . . . . . .3
`
`Lexmark Int’l, Inc. v. Impression Prod., Inc.,
`816 F.3d 721 (Fed. Cir. 2016) (en banc) . . . . . . . . . . . .4
`
`
`Lexmark Int’l, Inc. v.
`Ink Techs. Printer Supplies, LLC,
`9 F. Supp. 3d 830 (S.D. Ohio 2014) . . . . . . . . . . . . . . . .3
`
`
`
`Lexmark Int’l, Inc. v.
`Ink Techs. Printer Supplies, LLC,
` No. 1:10-CV-564, 2014 WL 1276133
`
`(S.D. Ohio Mar. 27, 2014) . . . . . . . . . . . . . . . . . . . . . . 2-3
`
`LG Elecs., Inc. v. Bizcom Elecs., Inc.,
`
`453 F.3d 1364 (Fed. Cir. 2006) . . . . . . . . . . . . . . . . . .19
`
`Mallinckrodt, Inc. v. Medipart, Inc.,
`976 F.2d 700 (Fed. Cir. 1992) . . . . . . . . . . . . . . passim
`
`
`Cited Authorities
`
`Page
`
`
`
`vi
`
`Mitchell v. Hawley,
`
`83 U.S. (16 Wall.) 544 (1872) . . . . . . . . . . . . . . . . . . . . .9
`
`Motion Picture Patents Co. v.
`Universal Film Mfg. Co.,
`243 U.S. 502 (1917) . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
`
`
`
`Ninestar Tech. Co., Ltd. v. Int’l Trade Comm’n,
`
`667 F.3d 1373 (Fed. Cir. 2012) . . . . . . . . . . . . . . . . . .30
`
`Payne v. Tennessee,
`
`501 U.S. 808 (1991) . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
`
`Quanta Comput., Inc. v. LG Elecs., Inc.,
`553 U.S. 617 (2008). . . . . . . . . . . . . . . . . . . . . . . passim
`
`
`Quill Corp. v. N. Dakota,
`
`504 U.S. 298 (1992). . . . . . . . . . . . . . . . . . . . . . . . . . . .12
`
`Reiter v. Sonotone Corp.,
`
`442 U.S. 330 (1979). . . . . . . . . . . . . . . . . . . . . . . . . . . .22
`
`Sony Corp. of Am. v.
`Universal City Studios, Inc.,
`464 U.S. 417 (1984) . . . . . . . . . . . . . . . . . . . . . . . . 28, 29
`
`
`
`United States v. Univis Lens Co.,
`
`316 U.S. 241 (1942) . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
`
`Cited Authorities
`
`Page
`
`
`
`vii
`
`STATUTES
`
`35 U.S.C. § 271(a). . . . . . . . . . . . . . . . . . . . . . . . . . .8, 23, 31
`
`35 U.S.C. § 271(g) . . . . . . . . . . . . . . . . . . . . . . . . . . . .23, 31
`
`35 U.S.C. § 295. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23, 31
`
`17 U.S.C. § 109 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7, 26, 27
`
`17 U.S.C. § 109(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
`
`Leahy–Smith America Invents Act, Pub. L.
`
`112–29, 125 Stat. 284 (2011) . . . . . . . . . . . . . . . . . . . .26
`
`OTHER AUTHORITIES
`
`Brief of United States as Amici Curiae, Impression
` Prod., Inc. v. Lexmark Int’l, Inc., No. 15-1189. . . . .25
`
`U.S. Department of Justice and Federal
`Trade Commission, Antitrust Guidelines
`for the Licensing of Intellectual Property
`§ 2.3 (1995) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
`
`
`
`Supreme Court Rule 37.6 . . . . . . . . . . . . . . . . . . . . . . . . . .1
`
`U.S. Const. art. I, § 8, cl. 8 . . . . . . . . . . . . . . . . . . . . . . . .24
`
`Cited Authorities
`
`Page
`
`
`
`
`
`1
`
`INTEREST OF AMICUS CURIAE
`
`Amicus curiae Intellectual Property Owners
`Association (IPO) is a trade association representing
`companies and individuals that own and license intellectual
`property rights in all industries and fields of technology.
`IPO’s membership includes more than 200 companies and
`more than 12,000 individuals involved in the association
`either through their companies or as inventor, author,
`executive, law firm, or attorney members. Many IPO
`members are involved in the licensing and sale of patented
`products and services, whether as patent owners, licensors,
`licensees, or users, and will benefit from clarification of
`the rights of patent owners and licensors to impose
`conditions on purchasers, licensees, and users of patented
`products and services. Founded in 1972, IPO represents
`the interests of all owners of intellectual property. IPO
`regularly represents the interests of its members before
`Congress and government entities and has filed amicus
`curiae briefs in this Court and other courts on significant
`issues of intellectual property law.1 The members of the
`IPO Board of Directors which approved the filing of this
`brief are listed in the Appendix.2
`
`1. Consistent with Supreme Court Rule 37.6, no counsel for
`a party authored this brief in whole or in part, and no party or
`counsel for a party made a monetary contribution intended to fund
`the preparation or submission of this brief. Counsel for all parties
`have consented to the filing of this brief.
`
`2. IPO procedures require approval of positions in briefs by
`a two-thirds majority of directors present and voting.
`
`
`
`2
`
`STATEMENT
`
`1. Respondent Lexmark International, Inc. (Lexmark)
`makes and sells toner cartridges both in the United
`States and abroad. Its cartridges are covered by
`a number of Lexmark’s U.S. patents. All of the
`cartridges sold in the U.S. and some sold abroad
`were subject to an express single-use/no-resale
`restriction. Petitioner Impression Products, Inc.
`(Impression) acquired spent cartridges that had
`been sold by Lexmark both in the United States and
`abroad intending to reuse and resell the cartridges
`in the United States without Lexmark’s authorization
`and contrary to the express single-use/no-resale
`restriction.
`
`2. Lexmark sued Impression for patent infringement.
`Impression moved to dismiss Lexmark’s suit, arguing
`that (1) the single-use/no-resale restriction is invalid
`under this Court’s decision in Quanta Comput., Inc. v.
`LG Elecs., Inc., 553 U.S. 617 (2008); and (2) Lexmark’s
`patent rights were exhausted as to the cartridges
`sold abroad under this Court’s decision in Kirtsaeng
`v. John Wiley & Sons, Inc., 133 S. Ct. 1351 (2013).
`
`3. The district court granted Impression’s motion to
`dismiss on conditional-sale grounds, concluding that
`“the relevant caselaw does not reflect an endorsement
`by the Supreme Court of post-sale use restrictions
`once goods are placed into the ordinary stream of
`commerce” and that “[u]nder Quanta, . . . post-sale use
`restrictions do not prevent patent rights from being
`exhausted given that the initial sales were authorized
`and unrestricted.” Lexmark Int’l, Inc. v. Ink Techs.
`
`
`
`3
`
`Printer Supplies, LLC, No. 1:10-CV-564, 2014 WL
`1276133, at *6 (S.D. Ohio Mar. 27, 2014).
`
`4. The district court denied Impression’s international-
`exhaustion motion to dismiss, finding that Kirtsaeng
`was not inconsistent with the Federal Circuit’s
`decision in Jazz Photo Corp. v. Int’l Trade Comm’n,
`264 F.3d 1094 (Fed. Cir. 2001), and refusing to apply
`Kirtsaeng to a case involving a patent, rather than a
`copyright. Lexmark Int’l, Inc. v. Ink Techs. Printer
`Supplies, LLC, 9 F. Supp. 3d 830, 834-38 (S.D. Ohio
`2014).
`
`5. On appeal and after a hearing before a single panel,
`the Federal Circuit ordered that the appeal be heard
`en banc. Lexmark Int’l, Inc. v. Impression Prod.,
`Inc., 785 F.3d 565 (Fed. Cir. 2015). The court also
`requested that the parties file new briefs addressing
`two questions:
`
`a. “In light of Quanta . . ., should this court overrule
`Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700
`(Fed. Cir. 1992), to the extent it ruled that a sale
`of a patented article, when the sale is made under
`a restriction that is otherwise lawful and within
`the scope of the patent grant, does not give rise
`to patent exhaustion?”
`
`b. “In light of Kirtsaeng . . ., should this court
`overrule Jazz Photo . . ., to the extent it ruled
`that a sale of a patented item outside the United
`States never gives rise to United States patent
`exhaustion?”
`
`
`
`4
`
`6. A substantial majority of the Federal Circuit judges
`(10-2) answered both questions in the negative. The
`court first affirmed its holding in Mallinckrodt “that
`a patentee, when selling a patented article subject
`to a single-use/no-resale restriction that is lawful
`and clearly communicated to the purchaser, does not
`by that sale give the buyer, or downstream buyers,
`the resale/reuse authority that has been expressly
`denied.” Lexmark Int’l, Inc. v. Impression Prod.,
`Inc., 816 F.3d 721, 726 (Fed. Cir. 2016) (en banc). It
`then affirmed its holding in Jazz Photo, “that a U.S.
`patentee, merely by selling or authorizing the sale
`of a U.S.-patented article abroad, does not authorize
`the buyer to import the article and sell and use it in
`the United States, which are infringing acts in the
`absence of patentee-conferred authority.” Id. at 727.
`
`SUMMARY OF ARGUMENT
`
`On December 2, 2016, this Court granted the petition
`for a writ of certiorari to decide two independent
`questions:
`
`1. Whether a “conditional sale” that transfers title
`to the patented item while specifying post-sale
`restrictions on the article’s use or resale avoids
`application of the patent exhaustion doctrine
`and therefore permits the enforcement of such
`post-sale restrictions through the patent law’s
`infringement remedy.
`
`2. Whether, in light of this Court’s holding in
`Kirtsaeng that the common law doctrine barring
`restraints on alienation that is the basis of the
`
`
`
`5
`
`exhaustion doctrine “makes no geographical
`distinctions,” a sale of a patented article—
`authorized by the U.S. patentee—that takes
`place outside of the United States exhausts the
`U.S. patent rights in that article.
`
`Question 1. As to Question 1, IPO submits that
`this Court’s ruling in Quanta, which distinguished and
`reaffirmed General Talking Pictures Corp. v. W. Elec.
`Co., 304 U.S. 175, affirmed on reh’g, 305 U.S. 124 (1938),
`does not render unlawful all forms of conditional sales of
`patented products. Nor should it. Post-sale restrictions
`on a patented article’s use or resale do not invoke
`application of the patent exhaustion doctrine. In Quanta
`this Court distinguished Talking Pictures, observing that
`in the latter case the provision restricting uses to those
`permitted by the patent owner was found in the license
`itself, whereas in Quanta the license authorizing the sale
`of patented chips made by the licensee was unconditional.
`553 U.S. at 636-37.
`
`When it rendered its decision in Quanta, this Court
`was aware of the Federal Circuit’s Mallinckrodt decision
`and the reliance placed on that decision by patent owners.
`Although this Court reversed the Federal Circuit’s
`conclusion in Quanta as to exhaustion, the complete
`absence of any mention of Mallinckrodt – particularly
`when combined with the Court’s reaffirmation of Talking
`Pictures – should be viewed as affirmation that properly
`crafted restrictions in sales contracts and license
`agreements on fields-of-use, customers, resale, and the
`like are to be upheld as long as they do not exceed the
`lawful scope of the patent. This outcome is important to
`IPO and its members, as they have long relied on their
`ability to have lawful restrictions “run with the patent.”
`
`
`
`6
`
`A ruling otherwise would, incongruously and
`illogically, treat differently conditional sales by a licensee
`and those by a patent owner-licensor. When proper notice
`is given to the purchaser of patented goods whose use or
`resale is restricted by the patent owner (or its licensee),
`it would be irrational to reach different results depending
`on whether the sale was made by the patent owner or by
`its licensee or whether the restraint is initially imposed
`in a license or in a sales agreement. Indeed, it would be
`counterintuitive for a licensee, who takes by license limited
`rights from the patent owner, to have more power than
`the patent owner to control the downstream use of the
`patented product or process. As long as the customer
`consents to the restriction at the time of the transaction,
`there is neither unfairness nor impracticality in enforcing
`such restrictions on the use or resale of patented items.
`
`Question 2. Question 2 is independent of Question
`1, and the answer to the first does not implicate, much
`less compel, the answer to the second. As to Question
`2, IPO submits that the copyright exhaustion ruling in
`Kirtsaeng on its own terms does not apply in patent
`cases. The Copyright Act provides explicit direction for
`exhaustion which is contrary to that provided in the Patent
`Act and the policy considerations for patent rights differ
`substantially from those for copyright works. Therefore,
`the existing and clearly established jurisprudence
`governing international exhaustion reflected in the
`Federal Circuit’s Jazz Photo ruling and its progeny should
`not be disturbed.
`
`In Kirtsaeng, this Court had ample opportunity to
`equate patent policy and copyright policy had it intended
`to do so, and the absence of any mention of patents is an
`
`
`
`7
`
`indication that this Court viewed the two bodies of law as
`distinct. It was appropriate for this Court to confine its
`focus to copyright law alone, because many of the policy
`considerations that underlie copyright exhaustion differ
`substantially from those underlying patent exhaustion.
`Moreover, the Kirtsaeng decision itself is grounded
`primarily in the statutory language of section 109 of
`the Copyright Act, 17 U.S.C. § 109, which was based
`on considerations unique to copyright law, whereas the
`doctrine of patent exhaustion is purely a creature of
`decisional law developed in patent cases. IPO does not
`believe that the Federal Circuit’s decisions in Jazz Photo
`and its progeny should be modified with respect to whether
`sales by the patent owner in foreign countries exhaust
`U.S. patent rights. Again, this outcome is important to
`IPO and its members, as they have relied on the rule that
`sales abroad are legally different under the patent laws
`than sales in the United States.
`
`ARGUMENT
`
`This Court has long recognized that conditions on
`the sale or licensing of patented products are valid and
`enforceable, as long as those conditions are otherwise
`lawful and consistent with the scope of the patent
`protection for those products. This Court has also
`independently recognized that sales abroad of patented
`products and services do not exhaust patent protection.
`The Court should not change course on either issue. To
`the contrary, the Court should reaffirm the principles
`set forth in Jazz Photo and Mallinckrodt and affirm the
`decision below.
`
`
`
`8
`
`I. This Court’s Quanta decision does not render all
`forms of conditional sales or licenses of patented
`products unlawful, nor should it.
`
`The validity and enforceability of conditional sales
`and licenses has long been recognized by both this Court
`and the Federal Circuit. Just eight years ago, in Quanta,
`this Court reaffirmed this longstanding rule established
`in Talking Pictures. The Federal Circuit faithfully applied
`that rule in both its Mallinckrodt decision and the decision
`below. For these reasons, the rule should be affirmed once
`again, as should the Federal Circuit’s decision in this case.
`
`A. The policies underlying reasonable limitations
`on use and resale in sales contracts and
`licensing agreements are sound and well-
`settled, and long-standing practices in the
`pharmaceutical, agricultural, and technology
`industries relying on such limitations weigh
`heavily against a break from this Court’s
`precedents recognizing their validity.
`
`The legitimacy of imposing reasonable restrictions
`on the use and sale of patented products has a sound
`statutory basis. 35 U.S.C. § 271(a)3 recites separately the
`specific rights that are included in the statutory bundle
`of patent rights – i.e., the rights to exclude others from
`making, using, offering to sell, selling, and importing the
`patented invention.4 The only practical way to ensure
`
`3. The relevant portion of § 271(a) essentially codified section
`4884 of the Revised Statutes, which defined infringement at the
`time of Talking Pictures.
`
`4. This Court has long recognized the implications of these
`separate recitations of rights. See, for example, Adams v. Burke,
`
`
`
`9
`
`the separability of these rights is to allow patent owners
`the freedom to sell and license those rights separately
`without risk of losing the remaining rights. This freedom
`to separate out and even subdivide restraints on use and
`sale was recognized well before Talking Pictures, and has
`provided the conceptual foundation for many types of sales
`and license restrictions, including now-classic fields-of-use
`and territorial limitations.5 And it is long-established and
`well-settled law that a patentee is not required to convey
`all of its rights in a patent – every “stick” in its “bundle”
`of property interests – in a single transaction. Adams v.
`Burke, 84 U.S. (17 Wall.) 453, 456 (1873).
`
`The freedom to contract works both ways; not only is
`the patentee given the flexibility to sell or license some,
`
`84 U.S. (17 Wall.) 453, 456 (1873), in which this Court noted that
`“[t]he right to manufacture, the right to sell, and the right to use
`are each substantive rights, and may be granted or conferred
`separately by the patentee.”
`
`5. E.g., Bauer & Cie v. O’Donnell, 229 U.S. 1, 15 (1913)
`(“Thus, there are several substantive rights, and each is the
`subject of subdivision, so that one person may be permitted to
`make, but neither to sell nor use, the patented thing. To another
`may be conveyed the right to sell, but within a limited area, or
`for a particular use, while to another the patentee may grant only
`the right to make and use, or to use only for specific purposes.”);
`Mitchell v. Hawley, 83 U.S. (16 Wall.) 544, 548 (1872) (affirming a
`finding of infringement by one who purchased a patented machine
`from a licensee that had the right to make and use but did not have
`the right to sell the machine during the term of the patent, this
`Court distinguished the situation before it, where the patent owner
`had clearly restricted the right of a licensee to sell machines, from
`one “where the sale is absolute, and without any conditions” and
`the buyer would therefore be free to treat the machine as his or
`her “private individual property.”).
`
`
`
`10
`
`all, or none of its patent rights (consistent with the quid
`pro quo of public disclosure of the invention in exchange
`for a time-limited power to exclude competition), but a
`purchaser has the flexibility to pay for only those rights
`it needs or intends to use. And allowing a patentee to
`exercise control over end products incorporating patented
`technology by imposing restrictions on, for example,
`quality or re-sale, protects the consuming public and the
`patentee’s reputation.
`
`Restrictions on downstream conveyances of patent
`rights are beneficial and procompetitive, because they
`allow a patent owner to license or to sell a new technology
`selectively to individual entities most likely to succeed
`within a specified field-of-use, territory, or customer
`population. Downstream restrictions also allow the patent
`owner to create incentives for potential users to invest
`time and resources in the development of their assigned
`markets, rather than elsewhere. Reasonable restrictions
`on downstream users sometimes provide the incentive for
`patent owners to grant rights that otherwise might not
`be possible – for example in situations when the patent
`owner intends to commercialize its own invention within
`one market segment but is willing to allow others to
`exploit the invention in other segments. This, of course,
`was the precise situation in Talking Pictures. See 304
`U.S. at 179. Without an enforceable restriction, a rational
`patent owner faced with the need to compete with its own
`licensees or their customers might well decide not to sell
`or license at all. The procompetitive benefits of conditional
`conveyances are noted in “Antitrust Guidelines for the
`Licensing of Intellectual Property,” promulgated jointly
`by the Department of Justice and the Federal Trade
`Commission in 1995:
`
`
`
`11
`
`Field-of-use, territorial, and other limitations
`on intellectual property licenses may serve
`procompetitive ends by allowing the licensor to
`exploit its property as efficiently and effectively
`as possible. These various forms of exclusivity
`can be used to give a licensee an incentive to
`invest in the commercialization and distribution
`of products embodying the licensed intellectual
`property and to develop additional applications
`for the licensed property.
`
`U.S. Department of Justice and Federal Trade Commission,
`Antitrust Guidelines for the Licensing of Intellectual
`Property § 2.3 (1995).
`
`A departure from well-settled rules that allow
`patentees, under the patent laws, to limit use and resale
`in sales contracts and licensing agreements particularly
`frustrates long-standing practices in many industries,
`including the pharmaceutical, agricultural, and technology
`industries. Overturning such a longstanding precedent
`would have a serious detrimental effect on the many
`thousands of licenses in place that govern many aspects
`of business. For decades, IPO and its members have
`relied on their ability to have lawful restrictions “run with
`the patent.” Such restrictions allow patentees to charge
`differential prices based on use, which decreases costs;
`encourages development of new products and technologies;
`and provides access to users who could not afford to
`pay for unlimited-use rights. As this Court recognizes,
`such reliance interests are particularly relevant in
`deciding whether to depart from precedent because
`“[a]dherence to precedent promotes stability, predictability,
`and respect for judicial authority.” Hilton v. S. Carolina
`
`
`
`12
`
`Pub. Railways Comm’n, 502 U.S. 197, 202 (1991) see also
`Kimble v. Marvel Entm’t, LLC, 135 S. Ct. 2401, 2410
`(2015) (declining to overrule a decision that “has governed
`licensing agreements for more than half a century” and
`noting that the decision enjoys a “superpowered form of
`stare decisis” because it was based on an interpretation
`of the patent laws and lay “at the intersection of two
`areas of law: property (patents) and contracts (licensing
`agreements)” in which “considerations favoring stare
`decisis are ‘at their acme’” because “parties are especially
`likely to rely on such precedents when ordering their
`affairs.”) (quoting Payne v. Tennessee, 501 U.S. 808, 828
`(1991)); Quill Corp. v. N. Dakota, 504 U.S. 298, 316 (1992)
`(industry’s reliance justifies adherence to precedent).
`
`Consistent with industry standards and sound
`economics, for example, Lexmark offered cartridges
`subject to its no-reuse/no-resale restriction at a discount,
`and if a purchaser wished to reuse or resell Lexmark’s
`patented cartridges, it was obligated to pay a premium
`to do so. A rule invalidating Lexmark’s restriction for
`purposes of patent exhaustion, however, eliminates the
`utility and commercial practicality of this distinction,
`either increasing the costs of cartridges across the board
`or decreasing the incentive to innovate and create better
`cartridges because Lexmark might never recoup the costs
`of that innovation. And the inefficient effects of such a rule
`would not be confined to the printer cartridge industry.
`Patent protection is a key incentive for innovation in
`numerous fields. Permitting otherwise lawful restrictions
`on sales and licenses ensures that patentees can recover
`their costs. And such restrictions allow patent owners to
`provide access to a variety of buyers and licensees through
`differential pricing in different markets.
`
`
`
`13
`
`B. Talking Pictures established the enforceability
`of sales and license provisions that restrict the
`use of patented items.
`
`This Court’s 1938 ruling in Talking Pictures provides
`a solid foundation for the Federal Circuit’s ruling in both
`Mallinckrodt and its decision below in this case. As noted
`in Section C, below, Talking Pictures was expressly
`acknowledged and reaffirmed in this Court’s Quanta
`decision.
`
`The patents at issue in Talking Pictures covered
`sound amplifiers and were licensed by the patent owner
`to multiple licensees, with each one allowed to pursue
`a specified field-of-use. The license restriction relevant
`to this Court’s decision provided that the licensee was
`not allowed to sell amplifiers for commercial, as opposed
`to private, uses. 304 U.S. at 180-82; on reh’g, 305 U.S.
`at 125-27. The defendant theatre operator, which had
`purchased its sound system from an entity licensed to
`sell only for amateur radio applications, argued that the
`license restriction was not enforceable and that the patent
`exhaustion doctrine allowed unrestricted use of amplifiers
`that had been manufactured by a licensee under the
`patent and sold “in the ordinary channels of trade” for
`full consideration. Id.
`
`This Court held otherwise, ruling that the amplifiers
`at issue had not been made and sold “under the patent,”
`because the field-of-use restriction limited the scope of
`the seller’s license to do so. Id. This Court stated that:
`
`Unquestionably, the owner of a patent may
`grant licenses to manufacture, use, or sell upon
`
`
`
`14
`
`conditions not inconsistent with the scope of
`the monopoly. There is here no attempt on the
`part of the patent owner to extend the scope of
`the monopoly beyond that contemplated by the
`patent statute.
`
`304 U.S. at 181 (citations omitted). Both the seller and
`the theater operator were found to infringe the patent,
`notwithstanding the license agreement:
`
`The [licensee] could not convey to [the theatre
`operator] what both knew it was not authorized
`to sell. By knowingly making the sales to [the
`theatre operator] outside the scope of its license,
`the [licensee] infringed the patents embodied
`in the amplifiers. [The theatre operator],
`having with knowledge of the facts bought
`at sales constituting infringement, did itself
`infringe the patents embodied in the amplifiers
`when it leased them for use as talking picture
`equipment in theaters.
`
`Id. at 181-82 (citations omitted).6
`
`6. Another issue certified by the Court in Talking Pictures
`was the adequacy of a label license restriction as the basis for
`holding the theatre operator liable for infringement, along with
`the licensee. There was no dispute that the theatre operator knew
`of the license restriction and knew that the sale by the licensee
`was outside the scope of the seller’s license. Therefore, this Court
`declined to decide whether the “license notice” included with each
`sale of sound equipment would have been adequate, standing alone,
`to make the customer liable for infringement. “As petitioner at
`the time it bought the amplifiers knew that the sales constituted
`infringement of the patents embodied in them, petitioner’s second
`question, as to effect of the license notice, need not be considered.”
`304 U.S. at 182.
`
`
`
`15
`
`The dissent by Justice Black, id. at 183, et seq., on
`reh’g, 305 U.S. at 128, et seq., would have precluded patent
`owners from imposing any restrictions at all on the uses
`to which a licensed article could be put after it was sold.
`In his view, a strict application of the exhaustion doctrine
`would have trumped any procompetitive benefits that
`might result from restrictive licensing. Citing Keeler v.
`Standard Folding Bed Co., 157 U.S. 659 (1895), Bauer &
`Cie v. O’Donnell, 229 U.S. 1 (1913), and Motion Picture
`Patents Co. v. Universal Film Mfg. Co., 243 U.S. 502 (1917),
`the dissent argued that, even though restrictions on use
`of patented products were common in patent licenses,
`such restrictions should not be allowed to support patent
`infringement claims against products sold by licensees.
`305 U.S. at 185-86.
`
`In rejecting this view, the majority in Talking Pictures
`necessarily reaffirmed a foundational principle of patent
`law – a patent owner is permitted to impose reasonable
`restrictions on downstream purchasers of its patented
`products with respect to uses that they are permitted to
`make. The continued viability of that rule has never been
`revisited nor seriously questioned by this Court.
`
`C. The Mallinckrodt decisio
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